Cost Management Accounting
is use of these resources that generate cost, most of which are overhead(indirect cost).
Benefits of ABC
Activity based costing brings accuracy and reliability in productcost determination by focusing on cause and effect relationship inthe cost incurrence.
Managers manage activities and not products. The changes inactivities lead to changes in costs. Therefore if the activities aremanaged well, costs will fall and resulting product will be morecompetitive.
ABC highlights the problem areas that deserve the management’sattentions and more detailed analysis.
ABC system is used in setting priorities for action.
Makes “Indirect” expenses “Direct”.
The relationship between primary and secondaryoverhead:
If the company wants to reduce the cost then it can reduce the cost bydown sizing of the labor cost. It can be better in condition where thecompany earns more profits. But in situation where demand becominghigh again of the products then recruiting and hiring of the staff andlabor raised the cost again. Here Traditional cost always fails but activitybased costing helped the company to solved the problems because ABCcosting allocating the exact cost pools to the actual products. In resultshigh volumes made in low cost and low volumes made in high cost.
1.Complexity with ABC Costing:
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